Market, Stocks, Supply Constraints and Inflation in May 2021

The stock market, economy, housing supply, COVID recovery and unemployment rates are all meeting at the crossroads in May 2021.

What will be the outcomes?

There are founded fears that inflation will hit sometime in the next few months as excessive money supply chases insufficient material supply, what with many industries continuing to be backlogged.

How is confluence affecting market outlooks, housing prices, mortgages rates and the Fed Cap Rate?
Find out about the future of your holdings today in our ongoing series.

• May Market
• Tech Stocks
• Supply Constraints
• Inflation
• Forecast
• Investing in 2021

Market, as of May 10th, 2021

• S&P 500 : 4,173.85 ↑
• Dow Jones 30 : 34,382.13 ↑
• Nasdaq : 13,429.98 ↑
• Russell 2000 : 2,224.63 ↑
• Crude Oil : $65.51 a barrel ↑
• Gold : $1,844.00 per ounce ↑
• US Dollar : $90.30 ↑

“Good employment and earnings reports are sending the indexes higher. The outlook for Tomorrow and next week and the next 6 months looks positive (with big correction worries).”

“Factors (that) stand out as potential bull-market wreckers, including the spread of coronavirus variants, increasing inflation rates, and the prospect of higher mortgage rates, which could quell a red-hot housing market.”

Tech Stocks

Tech stocks, including biotech, fintech (and financial), have booming throughout the pandemic.

“Tech has been hot. Investors should investigate the best tech stocks, including Google, Facebook, Amazon and Tesla. Tesla rose from last week. the FAANGs, check out the oil stocks, 5G stocks and find those that are ready rise in value.”

However, in the middle of May, tech took a dip before restabilizing on the 17th of May.

From the Fool.com:

The S&P 500 is up over 10% for the year and the Dow Jones Industrial Average just hit a new intraday high above 35,000. Yet at the same time, last year’s market leaders (small-cap tech stocks) are vastly underperforming the market. Cathie Wood’s ARK Innovation ETF, which in many ways embodies hypergrowth investing, is down over 15% for the year.

Investors continue to shift away from growth toward income and value.

Supply Constraints

As we wrote in our recent article about rising construction commodity costs, material supply as well as the product pipeline is being hampered by COVID related constraints. Additionally, normally vibrant sectors of the economy such as retail, tourism and hospitality are seriously depressed.

https://baicapital.com/sky-rocketing-construction-prices-affecting-real-estate-developments/

The macro picture is that capital is being funneled through some sectors, while other sectors are atrophying. Regional (and sector) recessions exist at the same time as regional / sector booms.

According to Gord Collins:

What (analysts) might be overlooking is the factor that’s also harming the housing market: lack of supply. With the pandemic shutdown in the US and with regulatory restriction on materials/manufacturing, the market is grossly under-supplied. It looks like this matter won’t be solved easily, and the result is prolonged unemployment with inflation. It’s a little bit of stagflation.

Inflation

Which leads us to the Elephant in the Room….INFLATION.

The worst-case scenario envisions an unexpectedly large increase in inflation by early next year topping well over 3% that forces the Federal Reserve to raise interest rates sooner and more aggressively than expected.

The results could be devastating. Higher inflation and interest rates could send stocks plummeting, choke off growth in a still-healing economy and potentially even induce another recession.

The consumer price index in April increased 4.2% from a year earlier, according to the Labor Department. That headline gain for the CPI, which measures a range of goods and energy and housing costs, is the fastest rate in more than 12 years.

Wall Street pioneer Thomas Peterffy told CNBC on Wednesday he was concerned about the prospect of damaging inflation in the U.S.

“I’m very worried this is an unstoppable situation because the longer the Fed waits, the more they will have to raise the rates,” Peterffy commente.

Forecast

In our article from the beginning of April we wrote that many analysts anticipate a strong GDP growth for 2021, with some projections over 8%.

https://baicapital.com/us-market-and-economy-trends-for-spring-2021-and-post-covid/

Here are some updated figure from early May:

1. US GDP to Grow 7.9% in 2021
2. US Gross Domestic production grew 6.4% in the 1st quarter.
3. Some are predicting GDP growth to reach near 10% in the April to June quarter.

Is anything still holding back the stock markets right now? Three things: Biden Presidency, inflation, and the belief that interest rates have to go up sometime. Smart investors look 6 months to 5 years down the road.”

Investing in Second Half of 2021 – and Beyond

How far ahead do you look when making your plans? Do you mix short and long term returns, anticipating various risk rates to compensate for lower or higher ROI’s?

If the GDP rises as projected and recovery from the pandemic continues as expected, we could see a more well rounded economy into 2022.

“The 5 year stock market forecast (and 5 year housing market forecast ) look really good too because the American consumer is well employed and will see plenty of jobs as business is rebuilt from the ground up. Intent to buy homes is strong and construction rates will grow fast through the spring. If the economy stutters, the Biden admin will not be reluctant to give stimulus. Small business will need a transfusion, and it will get one.

However, if things go sour,

5 things to do if a crash or big correction occurs ( according to nasdaq.com )

1. Understand your risk tolerance ahead of time
2. Reassess your holdings
3. Have cash at the ready
4. Don’t forget about dividend stocks
5. Think value during the early stages of an economic recovery

Today’s Takeaways

Keeping yourself informed of the key factors and variables in investment trends requires your time to read up, keep in the loop and stay current. Having a solid group of partners and advisors that you can trust means everything, especially in these times of rapid change, turbulence and uncertainty.

We hope that you enjoy reading our weekly emails, that they help you with your analysis and choices for your holdings.

As the world will continue to change, so will the markets – and your investments.

We at BAI Capital are just one phone call or email away, to answer any of your Equity, EB-5 immigration, and property investments.

May your 2021 be healthy and prosperous.